Board Meeting Lapses: MCA reduces Penalty from ₹28.5 Lakh to ₹2.85 Lakh

Water & Sanitation (India) for Urban Poor and its directors filed an appeal under Section 454(5) of the Companies Act, 2013, challenging penalties imposed by the Registrar of Companies (ROC), Karnataka, for failing to convene board meetings from 2011-2019. The company cited the resignation of office bearers in 2010, lack of active projects, and uncertainty about future operations as reasons for the non-compliance.

Initially, the ROC imposed a total penalty of ₹28,50,000, including ₹16,00,000 on the company and varying amounts on its directors. The appellants argued that as a non-profit entity under Section 8 of the Companies Act, the company had no financial transactions or ongoing operations, making the penalty an undue financial burden. They requested leniency, highlighting that the default was not intentional and had not caused public harm.

After reviewing the appeal, the Regional Director reduced the penalties to 10% of the original amount, imposing ₹1,60,000 on the company and lesser fines on the directors, bringing the total penalty to ₹2,85,000. The company and its directors paid the reduced fines on January 16, 2025.

Following compliance, the appeal was disposed of, and the order was issued to relevant authorities, including the ROC, Karnataka, and the Ministry of Corporate Affairs.

F.No:9/38/ADJ/SEC.173(1) of CA, 2013/KARNATAKA/RD(SER)/2024
BEFORE THE REGIONAL DIRECTOR, SOUTH EAST REGION
MINISTRY OF CORPORATE AFFAIRS, HYDERABAD
IN THE MATTER OF COMPANIES ACT, 2013/6163

IN THE MATTER OF WATER & SANITATION (INDIA) FOR URBAN POOR

1.  M/s. Water & Sanitation (India) for Urban Poor
2.  Mr. Thomas Palakudiyil Scaria, Director
3.  Mr. William Day, Director
4.  Mr. Samuel George Christupher Parker, Former Director
5.  Mr. Ravi Narayanan, Former Director

….. Appellants

Date of hearing: 12.12.2024
Present : Mr. Divesh Goyal, PCS on behalf of the Appellants

ORDER

This is an appeal filed under section 454(5) of the Companies Act, 2013 (hereafter referred as Act) by the above appellants in e-form ADJ vide SRN F98186422 dated 06.09.2024 against the adjudication order passed by the Registrar of Companies, Karnataka in F No. ROC(B)/Adj.Ord.454-173(1)/Water & Sanitation /Co.No.039701/2024/ dated 09.07.2024 under section 454 of the Act, for violation of provisions of Section 173(1) of the Companies Act, 2013.

2. The Registrar of Companies in his order of adjudication has stated that the company has filed a suo-motu application on 19.03.2024 for violation of Section 285 of the Companies Act, 1956 and Section 173(1) of the Act wherein it was submitted that the company has failed to convene board meetings for the financial years 2011-12 till 2018-19. It submits that the default was incurred due to the absence of office bearers in India and uncertainty on the future of the business activities of the company. The hearing was held before the Registrar of Companies on 22.05.2024 and after hearing the authorized representative had levied a penalty of Rs.16,00,000/- on the Company and Rs.4,00,000/- each for 3 directors namely. Mr. Thomas Palakudiyil Scaria, Mr. Samuel George Christupher Parker and Mr. William Day and Rs.50,000/- on Mr. Ravi Narayana, Director (total aggregating to Rs.28,50,000/-).

3.1 Aggrieved by the adjudication order, the appellants have filed the above appeal, submitting that the appellant company, a non-profit company registered under section 25 (now section 8 of the Companies Act, 2013) scaled down its workforce in Karnataka following projects completion and a subsequent lack of new projects. This led to the resignation of all office bearers in 2010, resulting in the alleged defaults. The Appellant Company has no ongoing or planned operations in India. It had intended to rectify the defaults through adjudication prior to its liquidation.

3.2 Appellant Company has stated that the alleged violations were not deliberate but rather the result of unforeseen circumstances arising from the absence of its directors and requested that while adjudicating quantum of penalty, the adjudicating officer shall have due regard to the following factors namely;

(a) Size of the company

(b) nature of the business carried on by the company

(c) injury to the public interest

(d) nature of default

(e) repetition of default.

3.3 The Appellant Company is a Section 8 Company with no business operations or financial transactions, imposing a penalty on a non-profit company in the process of liquidation, with no available funds, constitutes a severe financial burden.

4.1 The authorized representative Mr. Divesh Goyal, Practicing Company Secretary appeared for hearing on 12.12.2024 on behalf of the appellants before the then Regional Director and reiterated the submissions made in the appeal and requested to waive the penalty levied and the appellant company will be put to irreparable damage, loss, hardship and injustice. Further also stated that Appellant Company has failed in conducting at least one meeting of the Board of Directors in each quarter of financial year i.e. minimum four board meetings for the financial year 2011-12, 2012­13, 2013-14 and 2014-15 pursuant to Section 285 of the Companies Act, 1956 and vholding at least one meeting within every six calendar months for the financial year 2015-16, 2016-17, 2017-18 and 2018-19 under Section 173(1) of the Act. The default continued in the financial years 2011-12, 2012-13, 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 and 2018-19 under Section 173(1) of the Act/ Section 285 of the Companies Act, 1956.

4.2 The non-compliance arose due to the absence of company officials in India during a period till the financial year 2018-19 when the Appellant Company had no active projects and anticipated no future operations in the county. Thereafter, the Appellant Company ensured that it holds the adequate number of Board meetings to comply with the provision of Section 173(1) of the Act.

4.3 Further Mr. Thomas Palakudiyil Scaria and Mr. William Day who are present Directors of the company. Mr. Samuel George Christupher Parker and Mr. Ravi Narayana who served as a director from (August 17, 2011 to April 26, 2019) and (October 29, 2007 to February 27, 2013) respectively have resigned from their directorship and have no connection with the company. Therefore, they are unavailable for signatures or any further communications.

4.4 The Appellant Company is a Section 8 Company with no business operations or financial transactions. The default for non-compliance with the provision, neither any unlawful gain nor any unlawful loss was made.

5. Taking into consideration the above facts of the appeal and the submissions made by the authorized representative, the then Regional Director had imposed a penalty based on the Adjudication order passed by Registrar of Companies by reducing to 10% i.e., Rs.1,60,000/- for the Company and Rs.40,000/- each for 3 directors namely Mr. Thomas Palakudiyil Scoria, Mr. Samuel George Christupher Parker and Mr. William Day and Rs.5,000/- on Mr. Ravi Narayana, Director (total aggregating to Rs.2,85,000/-). The appellants were directed to comply with this order and were also reminded about the provisions of Section 454(8) of the Act, in case of failure to comply.

5. Accordingly, the appellants have paid the penalty as under

6. In view of the compliance reported, the appeal is accordingly disposed of, and this order is issued to the Appellants with a copy td Registrar of Companies, Karnataka and Joint Secretary, E-Governance Cell, Ministry of Corporate Affairs, New Delhi for information and necessary action.

Issued under my hand and seal on this 31st day of January 2025.

(Richa Kukreja)
Regional Director, SER
Ministry of Corporate Affairs, Hyderabad